THE THEORY OF INTEREST

scarce and future income relatively abundant. A man whois now enjoying an income of only $5000 a year, but whoexpects in ten years to be enjoying one of $10,000 a year,will today prize a dollar in hand far more than the pros-pect of a dollar due ten years hence. His great expecta-tions make him impatient to realize on them in advance.He may, in fact, borrow money to eke out this year’s in-come and promise repayments out of his supposedly moreabundant income ten years later. On the other hand, aprogressively dwindling income, one such that presentincome is relatively abundant and future income rela-tively scarce, tends to appease impatience—i.e., to reducethe want for present as compared with that for future in-come. A man who has a salary of $10,000 at present butexpects to retire in a few years on half pay will not havea very high rate of preference for present over futureincome. He may even want to save from his presentabundance in order to provide for coming needs.

These are, of course, only some of the various effectswhich various time shapes have on time preference. Theimportant point is that it does make a difference to aman’s time preference whether his income has one timeshape or another, just as it makes a difference whetherhis income is, as a whole, larger or smaller.

The extent of these effects will, of course, vary greatlywith different individuals. If two persons both have ex-actly the same sort of ascending income, one may have arate of time preference, or degree of impatience, indi-cated by 10 per cent, while the other may have one of only4 per cent. What we need to emphasize here is merelythat, if for either man a descending income were substi-tuted for an ascending income, he would experience areduction of impatience; the first individual’s might fall

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